# Lecture 8 Cost and Management Accounting

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```					Lecture No -08 (Solution file ).

Question no -01
Re-order level:

Maximum consumption x Lead Time [maximum]

130 x 30=3900 units.

Maximum stock level:

Reorder level – (Minimum consumption x Lead time [minimum]) + EOQ

3900 – (60 x 25) + 5000

3900 – 1500 + 5000 = 7400 units

Minimum stock level:

Reorder level – (Average consumption x lead time [Average])

Average lead time = Maximum + Minimum

2

3900 – (400 x 25 + 30)

2

3900 – (400 x 27.5)

3900 – 11000 = 7100 units

Danger stock level:

Average consumption x Emergency lead time

400 x 25(If no emergency time given then minimum re- orders period considered

400 x 25=10,000 units
Question no -02

Maximum stock level: B

Reorder level – (Minimum consumption x Lead time [minimum]) + EOQ

4750 – (700 x3) +5000=7650 units.

Working

Weekly production varies from 175 to 225 units, averaging 200 units.

Working= minimum weekly production is 175 units x per unit of product req uired
material use=4

(175 x 4= 700)

RE ORDER QUANTITY CONSIDERED Economic order quantity.

Minimum stock level: A

Reorder level – (Average consumption x lead time [Average])

Average lead time = Maximum + Minimum

2

8,000 – (2000 x 2)

8000 – 4000= 4000 units.

Working

Weekly production varies from 175 to 225 units, averaging 200 units.

Average production of unit x units x per unit of product required material use=
200 x 10= 2000

Re order level of C is already given = 2,000

Danger stock level:

Average consumption x Emergency lead time

2000 x 1 =2000

Working

Minimum delivery period would be considered emergency lead time.

Question no -03
Re-order level: A (material)

Maximum consumption x Lead Time [maximum]

75 x 6 = 450 units.

Re-order level: B (material)

Maximum consumption x Lead Time [maximum]

75 x 4 = 300 units.

Maximum stock level: A

Reorder level – (Minimum consumption x Lead time [minimum]) + EOQ

450 – (25 x 4) + 400 =750 units.

Maximum stock level: B

Reorder level – (Minimum consumption x Lead time [minimum]) + EOQ

300 – (25 x 2) + 600 = 850 units.
Minimum stock level: A

Reorder level – (Average consumption x lead time [Average])

Average lead time = Maximum + Minimum

2

450 – (50 x 5)

450 – 250 = 200 units.

Minimum stock level: B

Reorder level – (Average consumption x lead time [Average])

Average lead time = Maximum + Minimum

2

300 – (50x 3) = 150 units.

Danger stock level: A

Average consumption x Emergency lead time

50 x 4 =200 units

Danger stock level: B

Average consumption x Emergency lead time

50 x 2 = 100 units.

Question no -04
Re-order level:

Maximum consumption x Lead Time [maximum]

400 x 6 = 2400 units

Maximum stock level:

Reorder level – (Minimum consumption x Lead time [minimum]) + EOQ

2400 – (250 x 4) + 1500 = 2900 units

Minimum stock level:

Reorder level – (Average consumption x lead time [Average])

Average lead time = Maximum + Minimum

2

2400 – (30 x 5) = 2250 units.

Danger stock level:

Average consumption x Emergency lead time

30 x 4 minimum re order period considered emergency lead time.

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